BANGKOK: Fred Perrotta spent four years building a network of Chinese suppliers for his trendy backpack line, but as soon as the United States announced a tariff of almost half of Chinese imports, he began looking for suppliers in other countries.
The process is now very advanced, it will be too late to reverse it even if US President Donald Trump and his Chinese counterpart Xi Jinping call a ceasefire in their growing trade war at this week's G20 meeting, said the 33-year-old man.
Perrotta company Tortuga joins what industry experts say is the biggest shift in cross-border supply chains since China joined the World Trade Organization in 2001.
This shift creates fierce competition to secure new facilities in neighboring countries and rebuild supply chains outside of China, which is one fifth of global manufacturing.
"Everyone is nervous and scrambling," Perrotta said by telephone from Oakland, California, where he recently received the first sample shipment from a potential new supplier in Vietnam.
"Long term, we might change everything."
This struggle was driven by more, and higher risks, US tariffs in China, and concerns that a developing economy nearby could only accommodate new businesses on the basis of "coming first, first served".
Vietnam and Thailand emerged as preferred destinations, but they still faced capacity constraints ranging from red ribbons to skilled labor and limited infrastructure.
Reuters interviews with more than a dozen company executives, trade lawyers, and lobby groups in various industries revealed a frenzy of activity throughout Asia in recent months: executives are asking for product samples, tours to industrial parks, hiring lawyers, and meeting with officials .
In June, Hong Kong-listed furniture maker Man Wah Holdings bought a factory in Vietnam for US $ 68 million and said earlier this month it planned to nearly triple its capacity to 373,000 square meters by the end of 2019.
"This acquisition is to reduce the risks posed by tariffs," Man Wah said in a statement.
Vietnam-based industrial real estate developer BW Industrial said the investigation had surged since October, and all of its factories are now leased.
"Producers come from all over the world but they all have production plants in China and need to start production as soon as possible," Chris Truong, a sales manager at BW Industrial, told Reuters.
In Thailand, SVI Pcl, which provides electronic and manufacturing solutions, said it had just selected four new agreements worth around US $ 100 million with existing customers operating in China.
"A trade war is good for us," said CEO Pongsak Lothongkam. "We have been approached by many companies that we have to prioritize."
KCE Electronics, the largest maker of printed circuit boards in Southeast Asia, has been contacted by US companies that want to find new suppliers to replace one in China, CEO Pitharn Ongkosit told Reuters.
"This is a good opportunity. Many customers have contacted us to ask about our products and prices. But there are no sales because it will take time," he said.
The Pcl Microelectronics star, another Thai electronics manufacturing service provider, also gets new business.
"Two (or) three companies will start moving their production bases (out of China) to us soon," said CEO Peerapol Wilaiwongstien.
Cambodia is also attracting interest, with Parsippany, a NJ Kent International Inc based bicycle maker shifting Chinese production to Southeast Asian countries.
"We have big business in the United States," Arnold Kamler, owner and chief executive of the company, told Reuters. "There is no choice but to see as quickly as possible to move production away from China."
Re-sourcing and relocation efforts marked the acceleration of the already established trend as China's economy shifted towards high-tech services, consumption and production.
"We are on the cusp of the biggest source of disruption we have seen in a generation," said Stephen Lamar, executive vice president of the American Apparel & Footwear Association, which has more than 1,000 members who contribute more than 400 billion dollars per year to sales US retail.
"The No. 1 thing I've heard from companies is along the lines: For years we've talked about diversification from China and now we have to really do it & # 39;"
Production shifts can take years to complete: companies need to get funding, find the right supplier, sort out new logistics – all when dealing with new legal and accounting problems in countries they might not know well.
"Any relocation away from China will be very slow and very uncertain," said Aidan Yao, senior Asia economist at AXA Investment Managers.
Low-tech goods and low-value manufacturing will be the fastest to migrate while higher value-added exports in the machinery, transportation and IT categories will take decades to move due to high R & D costs and competitive Chinese labor costs , UBS said in an earlier note. this month.
However, a regional client poll by Citi conducted last month showed that more than half of them had adjusted their supply chains to limit upheaval to their businesses.
China's sophistication in areas such as automation means that no country can replace China, said trade lawyer Sally Peng of Sandler, Travis & Rosenberg.
"So everyone is looking for a China Plus One strategy, Plus Two, Plus Three, to Africa," he said.
The company has little hope for a ceasefire in a trade dispute when Trump and Xi will meet on the sidelines of the G20 summit in Buenos Aires this week.
Indeed, Trump said on Monday he hoped to move forward by raising tariffs on US $ 200 billion in Chinese imports to 25 percent from the current 10 percent.
While Chinese export data showed little sign of the impact of the trade war, some economists said it was because companies rushed to get more shipping in front.
VICTIMS OF VICTIMS
To be sure, the smaller Asian economies that emerged did not always lick their lips about the prospect of a worsening trade war between the two top economies in the world.
Growth has slowed in the third quarter in Southeast Asia, as well as in Taiwan, Japan and South Korea, with officials partly blaming trade war for that.
Thai exports of electronic integrated circuits, for example, rose 4 percent to the United States in October but fell 38 percent to China. Vietnam's manufacturing sentiment indicator is the highest in Asia but far from its peak.
The lack of infrastructure is also a problem for countries that want to take business.
Thailand is ranked 41st in the World Bank infrastructure quality rating, Vietnam is 47, compared to China's 20th rank.
Bangkok is trying to overcome this with the Eastern Economic Corridor, an ambitious development project of US $ 45 billion that plans improvements to deepwater ports, airports and railways.
Beyond infrastructure bottlenecks, red ribbons – especially in Vietnam – remain difficult to navigate and skilled labor is not easily available.
Vietnam's unemployment rate is 2.2 percent. Thailand is even lower.
"The proportion of unskilled workers in Vietnam remains large and there are no effective plans to fix this problem, and I don't see significant changes in five or even 10 years," said Vietnam Electronic Industries Association deputy chairman Nguyen Phuoc Hai.
"Whether cheap labor will remain one of Vietnam's advantages in facing the fourth industrial revolution is questionable."
(US $ 1 = 32,9800 baht)
(Reporting by Anne Marie Roantree, Farah Master, Noah Sin and Marius Zaharia in HONG KONG; Orathai Sriring in BANGKOK; Khan Vu and James Pearson at HANOI; Rajesh Kumar Singh at CHICAGO; Editing by Marius Zaharia and Lincoln Feast.)